Question

Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis

Mackinaw Inc. processes a base chemical into plastic. Standard costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 4,400 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	5,700 lb. at $5.40		5,600 lb. at $5.20
Direct labor	1,100 hrs. at $17.60		1,130 hrs. at $18.00
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 1,150 direct
	labor hrs.:
		Variable cost, $3.10	$3,380 variable cost
		Fixed cost, $4.90	$5,635 fixed cost

Each unit requires 0.25 hour of direct labor.

Required:

a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Price variance	$
Quantity variance	$
Total direct materials cost variance	$

b. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Rate variance	$
Time variance	$
Total direct labor cost variance	$

c. Determine variable factory overhead controllable variance, the fixed factory overhead volume variance, and total factory overhead cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Variable factory overhead controllable variance	$
Fixed factory overhead volume variance	$
Total factory overhead cost variance	$

Answer 1

a)

Price variance = Change in price * actual quantity

= (5.40 - 5.20)*5600 = 0.20*5600 = 1120 (F)

Quantity variance = Change in quantity * Standard price

= (5700-5600)*5.40 = 100*5.40 = 540 (F)

Total direct materials cost variance = 5700*5.4 - 5600*5.2

= 30780 - 29120 = 1660 (F)

b)

Rate variance = Change in rate * actual hours

= (17.60-18)*1130 = 0.4*1130 = 452 (U)

Time Variance = Change in hours* standard rate

= (1100 -1130)*17.6 = 30*17.6 = 528 (U)

Total direct labor cost variance = 1100*17.6 - 1130*18

= 19360 - 20340 = 980 (U)